Wednesday, November 14, 2007

Shunning The Simple Shopper

The Bloke investigates Government Shopping

The Simple Shopper features regularly on BOM. Every year his antics cost us taxpayers billions. Not only that, he often fails to bring home the actual overpriced bacon at all. From PFI, to GPs' contracts, to military kit, to IT systems, to post-it notes, the Shopper routinely trails waste and chaos in his wake.

There are a number of reasons for this sorry state. First, and fundamentally, there's the all too familiar fact that the Shopper answers to politicos, not to us end-customers. As we know, the principal interest of those rascally politicos is to get elected, not to get our public services working better. And in terms of fitness for purpose, most of them would struggle with that famous whelk stall, let alone a £100bn pa health service.

Second, few public sector shoppers have any meaningful experience of shopping in the real world. The senior ones are there because they want to shape "policy", not to get their hands dirty in the menial chore of implementation. And the more junior ones soon realise if they're any good at shopping they can earn a ton more in the commercial sector, where their skills are properly valued.

Time and time again, the Public Accounts Committee probes into shopping fiascos and comes back to this woeful lack of commercial skill- paying too much, half-baked specs, agreeing contracts that are not fully bolted down, selecting suppliers who aren't up to the job, etc, etc. The Shopper is naive and vulnerable.

True, in recent years, there's been a new emphasis on getting low prices, with Labour's Office of Government Commerce (OGC), and all kinds of whizzo innovations like e-auctions, where suppliers bid online to undercut competitors. But just selecting suppliers on the basis of price is a recipe for non-delivery. Let's just remind ourselves what an IT industry insider said about the bidding process for the NHS Supercomputer:

"The people who stayed in [the bidding] fell into two classes. Those who thought they could do it for the price but didn't understand the complexities of what they were getting into; or those that concluded you couldn't do it for the price but were willing to take the risk that the government wouldn't pull the plug on this and that they'd be able to get their money back from changes downstream."

He said the procurement process lacked sophistication: "So much of this public sector procurement is done on the basis of what is the lowest price and not enough attention is paid to the competence of the people who are actually tendering, what is their track record for delivering."

Now given this naivety, and given a bottomless pit of taxpayers' money on offer, you'd expect the evil capitalists from the private sector would be banging the door down. And indeed, that is the long and sorry history (eg the £3bn pa now spent on management consultants).

But just recently we detect a change in the air, and it could be quite important: mainstream suppliers are starting to shun the Shopper altogether.

We saw that spectacularly demonstrated last year when Accenture walked away from its multi-million NHS Supercomputer contract (eg see this blog). It did so because it recognised the project was so half-baked it could never be made to work. It was much better and cheaper for Accenture to suffer some short-term embarrassment and a $450m charge than to struggle on in the clinches with the hopeless Shopper.

And just yesterday, we heard from the healthcare suppliers who are so hacked off with Commissar Johnson's abrupt U-turn on buying private sector care for NHS patients, they may never deal with the NHS again: “There is a trust issue here. We have been led up the garden path. We are not sure we want to go up it again”.

But the whole issue is really coming to the boil over the 2012 Olympics.

As regular readers will recall, the Commissars' plan was to hold a giant competition among contractors, beat them down to get the very best deal, and insist on fixed price contracts. There was to be no repetition of the Dome fiasco.

We were always very sceptical about whether that was a realistic proposition (eg see this blog), and it looks like we were right.

Last month, we learned that both the main 2012 stadium and the aquatic centre only received one tender apiece (see this blog). The result is that, while the Olympic Delivery Authority (ODA) will get its fixed price contract (it seems), the price for both has escalated wildly beyond the original "budget": the main stadium is up 80% and the cost of the aquatic centre has doubled. Plus, both have been massively despecced, with the main stadium now little more than a plastic wrapped pit.

Today, we hear some real 2012 home truths from the contracting industry. Stephen Ratcliffe, the chief executive of the Construction Federation, says:

“There are only a limited number of contractors with the size and experience necessary to tackle the Olympic project. There are plenty of opportunities in the marketplace, allowing suppliers to choose the best opportunities. The Olympics is essentially a one-off project so the long-term opportunities are not there. It is also highly exposed and if things went badly wrong a contractor could damage its reputation irretrievably.”

And Graham Watts, the chief executive of the Construction Industry Council, which represents construction professionals, says:

“The ODA has too many masters. These include the International Olympic Committee, Ken Livingstone, the DCMS, the Treasury, Gordon Brown, the Olympic Board and the five London boroughs.

There are also a whole group of DCMS civil servants without any operational responsibility. They are only there to make sure that other people are doing their jobs, which can lead to complete inertia. There is no clear leadership at the top so no one makes decisions.”

Just read that last paragraph again. It captures so much of what's wrong with Big Government- no clear leadership, nobody trusted with real authority, and thousands of jobsworths demanding multiple checklists and other assorted bumpf.

With more and more media attention now focused on public sector waste and other government bog-ups, no wonder reputation-conscious commercial operators are getting wary of the Shopper. Especially since with fixed price contracts, there's no longer the cozy glow of the old cost-plus system to keep them warm at night (eg BAE Systems are reportedly taking a huge bath over the doomed Nimrod project).

This is bad news for taxpayers. The more wary suppliers get, the more their prices will go up. Commercial companies are not nearly as simple as the Shopper. They won't play the Shopper's bidding games, and given recent experiences, they will make doubly sure they can earn an honest crust from future contracts.

And we will pay the price.

As we've said many times, we would be so much better off if we all dealt directly with end commercial suppliers, just like we do with Tesco and Sainsburys. Having the Shopper intermediate his hopeless blundering presence in the middle is a sure recipe for more cost and less delivery.


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